Spring 2003

ME/IE 8773-8774

Behavioral Causes of the Bullwhip Effect and the Effects of Information-Sharing on Supply Chain Efficiency*

by

Rachel T.A. Croson
Associate Professor of Operations and Information Management
Wharton School
University of Pennsylvania
Philadelphia, PA 19104

Wednesday, May 7, 2003
3:30-4:30 p.m.
Room 108 ME
Broadcast on UNITE Channel A
Coffee and cookies will be available in 125 ME following the seminar

The tendency of orders to increase in variability as one moves up a supply chain is commonly known as the 'bullwhip effect.' We use methods from experimental economics to study this phenomenon from a behavioral perspective in the context of a simple, serial, supply chain subject to information lags and stochastic demand. In the first experiment we find the bullwhip effect still exists when normal operational causes (e.g., batching, price fluctuations, demand estimation, etc.) are removed. In the second experiment we find that the bullwhip, and the underlying tendency of underweighting, is reduced when information on inventory levels is shared. In the third experiment we find that the bullwhip is reduced when information on POS data is shared. The results also support the theoretically suggested notion that upstream chain members stand to gain the most from information sharing initiatives.

Professor Rachel Croson received her Ph.D. degree in Economics from Harvard University in 1994 and is currently an Associate Professor in the Department of Operations and Information Technology at the Wharton School of the University of Pennsylvania. Her research uses methods from experimental and behavioral economics to explore behavior in strategic (interactive, game-theoretic) settings including bargaining, public goods provision, and supply chain management. Recent work also examines individual decision-making in choices among competing service providers.

*The work is joint with Karen Donohue, Assistant Professor, Department of Operations and Management Sciences, University of Minnesota.

Informal Faculty Luncheon: Wednesday, May 7, 2003, 12:00 noon. Meet in 1100 ME and walk to lunch with other faculty. Prof. Croson will be able to attend.